Local technology stocks may hit their peak in the first quarter and drop later in the year if inventory risks re-emerge, leading to oversupply and putting off cautious investors, UBS Securities Pte Ltd said yesterday.
UBS Securities analyst Jonah Cheng (程正樺), based in Taipei, gave a “neutral” rating to the chip industry — a more conservative view than his peers.
“That means we need to watch the sector [before making any moves]. We will not suggest investors increase their holding of semiconductor stocks at the moment,” Cheng said, adding that the stock prices had factored in the better-than-seasonal outlook for the first quarter.
Cheng gave a “neutral” rating to most Taiwanese semiconductor companies, including the world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and top handset chip designer MediaTek Inc (聯發科).
Like some of UBS Securities’ Asian clients, Cheng believed the better-than-usual first quarter stemmed from inventory demand rather than solid recovery in end-demand, given the slow pickup in the global economy and narrow margin for further price drops in electronics.
Drastic price reductions in key components have helped electronics retailers slash prices this year, leading to robust unit sales of televisions and computers, he said.
For semiconductor companies in particular, inventory risk could re-emerge from the second quarter as stocks may rise to a mid-cycle 70 days’ inventory in late first quarter from a historical low of 60 days last quarter, Cheng said.
“Oversupply is also a concern,” Cheng said.
TSMC and rivals United Microelectronics Corp (UMC, 聯電) and GlobalFoundries Inc were set to expand their capacities in the second half of next year ahead of corporate computer replacement demand in the final quarter, which was expected to bring a substantial growth for PC makers, he said.
Apart from its “neutral” rating on the tech sector, which accounts for more than 70 percent of turnover on the local stock market, UBS also held a “neutral” view on the TAIEX, citing rising valuation.
Hardware electronics companies, however, were UBS Securities’ favorites, said William Dong (董成康), branch manager and head of Taiwan equities at UBS Securities’ Taipei Branch.
Corporate demand for laptop replacements and rising demand in emerging markets will fuel growth next year, Dong said.
The prospects for the traditional and financial sectors also looked fair, as improving cross-strait trade ties could increase business opportunities, Dong said.
“We have high hopes for more Chinese companies’ strategic investment in local firms and for Chinese institutional investors’ investment [in local shares] if restrictions are relaxed,” Dong said.
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